5 Ways To Minimize Short Term Debt

Nobody likes to have any debt – long or short term – but for short term debt, the relentless ticking clock reminds us that it has to be paid off as quickly as possible. Short term debt usually refers to debt that has to be repaid within a year. With a bit of clever financial management, and some other effective debt-handling techniques, you can have it paid off quite quickly if you are focused and disciplined. Having the actual debt is not such a bad thing: the problems creep in with how you handle your money.

Having a large amount of short-term debt can really cripple you financially, not to mention what it does to your state of mind. So it is in your best interest to try and find ways to deal with it reduce it and finally get rid of it completely. To start with, work out whether it is healthy or unhealthy debt. Healthy debt is worthwhile if it is for an asset and paid regularly, like your mortgage for example. You can also claim deductions from your income tax for ‘healthy’ debt. Unhealthy debt refers to things you have bought recklessly and which have no appreciation value – such as a ‘fly now pay later’ vacation or an unnecessary fancy new vehicle.

Here are 5 tips for you to put into practice to minimize your short term debt:

1. Be methodical about sorting through your debt and working out which one has to be paid off first. Usually this is the one with the highest interest rate which is not tax deductible. Credit cards are tempting to use to purchase big ticket items, and rarely are these items classified as assets. So, get into the habit of paying off your credit card bill in full every month. If you have more than one credit card, then you need to transfer the money owed on the highest interest bearing card to the one with the lowest interest rate;
2. Do not fall into the ‘minimum payment trap’. All this does is charge you more interest while spreading the debt over a longer time period. You might have more time to pay it off, but you are paying more interest too. This is not a bargain at all. It is a clever way for the company to make more money at your expense;
3. Do not buy on ’impulse’.  If you are on a diet, you are advised never to go grocery shopping when you are hungry – this is the same thing – do not go shopping unless you have a shopping list for necessity items. Or, wait another day or two till the impulsive urge subsides, then go shopping;
4. When paying off a short term debt, pay as much as you can off the debt amount every month.Pump any extra cash you may have into this account. Try not to go out for a meal every week – go every second week and put that money towards reducing your outstanding balance. You will be amazed at what a difference this can make as it also lessens the amount of interest charged;
5. Lastly, if your short term debt is rather high, then make a list of all your creditors and give them all a call. Explain your situation and how you plan to pay off what you owe. You will find that they are more than happy to talk to you and to assist you. It is much better for you to call them than to wait for them to demand the money from you.

While putting these tips into practice, it is essential that you are aware of what you are doing so that you never let yourself get into this kind of debt spiral again. Living in the twenty-first century is very challenging and sometimes you have no choice but to collect some short term debt along the way. That is ok – but make sure you manage it efficiently before it manages you. In the words of an experienced debt management attorney, always remember

“It is better to be owed, than to owe and be owned” – Rohan Lamprecht.